The Nature and Significance of Strategic Alliance

Dhawal Mehta and Sunil Samanta

Is Strategic Alliance a Fad ?

Strategic alliance is emerging as and proving to
be a powerful management tool/technique in business
management, especially in the current era of globali-
zation of business. But, unlike other management
tools or techniques, strategic alliance may harm the
interest of business or even make the managers of
the business lose their business altogether. Hence,
strategic alliance may well be called a double-edged
sword that helps business conquer new areas of
In the current scenario of globalization of business if handled properly and if not damages the
business, strategic alliance is emerging as business interest to an extent that perhaps no other
a powerful management tool in business tool or technique can.
management. Though alliances are as old A sound understanding of the nature and
as the industrialization during the 15th significance of strategic alliance is imperative for the
managers of Indian business firms at present to
and 16th centuries, they are being protect and expand their business which is threatened
refocused in the 20th century. But, by the onslaught of globalization of business.
strategic alliance is not an unmixed Business organizations world over have been
blessing as more number of alliances encashing on the concept of "cognitive dissonance"
have turned out to be failures. of consumers. Cognitive dissonance is that uneasy
feeling suffered by the consumers contributed by the
In this article, Dhawal Mehta and merits of unchosen alternatives (goods/services) and
Sunil Samanta discuss the nature and demerits of chosen alternatives. Alert consumers of
significance of strategic alliance by citing today want their cognitive dissonance to be nil,
a few recent cases of strategic alliances in almost. This has triggered pressure for the businesses
to enter into strategic alliances with others including
the Indian industry, argue out why their rivals/ competitors in order to quickly offer to
strategic alliance should be resorted to, consumers the alternatives (goods/services) which
and list out do's and dont's to enable tend to have all merits and nil demerits.
Indian companies to successfully catapult Definition
themselves to the mainstream of global Merriam-Webster's Collegiate Dictionary, third edition,
business. defines alliance as "an association or union formed
Dhawal Mehta is the Director of BK School for the -furtherance of the common interests and aims
of the members."
of Business Management, Gujarat University,
Ahmedabad and Sunil Samanta is a Deputy
Director (RMPA) at the Consumer Education
and Research Centre, Ahmedabad.

15
Vol. 21, No. 2, April -June 1996
 A strategic alliance associates two or more firms contradictory. Actions dictated by one strategic
each desiring to gain manifestedly as well as unmani- objective frequently impede another equally important
festedly by linking specific aspects of their businesses. objective requiring managers to prioritize, often with
It is difficult to find a definition of strategic limited success. An alliance-seeking firm must take
alliance as most writers remain flexible and imply into account two managerial dimensions — coopera-
strategic alliance to be any kind of interfirm links tion and competition/conflict. The task of managing
including mergers and licensing. The most alliances is to optimize along these two dimensions.
comprehensive definition, however, has been provided The strategic goals of partner firms fall into four
by Yoshino and Rangan (1995) in Strategic Alliances: An broad categories. Two are positive and relate to
Entrepreneurial Approach to Globalisation, the first and enhancing firm effectiveness and two are defensive
perhaps the only book to treat the new alliances aimed at preventing loss of effectiveness. The first
comprehensively as instruments of long-term strategic goal is to add value to an activity. The second
competitive advantage rather than as short-term goal of a partner is to augment its strategic compe-
defensive manoeuvres. tencies through learning from its opposite. On the
They define strategic alliance as possessing defensive side, a partnering firm must maintain
simultaneously the following three necessary and strategic flexibility by keeping its options open and
sufficient characteristics. creating new options when feasible. Finally, a firm
must guard against its core competencies or strategic
* Two or more firms unite to pursue a set of agreed advantages being appropriated by a partner.
upon goals but remain independent subsequent to
the formation of the alliance. In any joint venture, firms are likely to be
concerned with sharing the pie, but another, more
* The partner firms share the benefits of the alliance serious aspect to conflict is that the firms may be, or
and control over the performance of assigned tasks anticipate being, rivals in the marketplace. The extent
— perhaps the most distinctive characteristic of of organizational interaction in the cooperative
alliances and the one that makes them so difficult approach to a joint activity is not merely the frequency
to manage. of interaction between the collaborating firms but a
* The partner firms contribute on a continuing basis proxy for a number of related issues.
in one or more key strategic areas, for example, Taking the extreme values, high and low of conflict
technology, product, and so forth. potential, and cooperative interaction, Yoshino and
By this definition, Yoshino and Rangan (1995) Rangan have classified strategic alliances into four di-
exclude from the term strategic alliance mergers, take- stinct types—procompetitive, non-competitive, compe-
overs, acquisitions, joint ventures of overseas subsi- titive, and precompetitive (Figure 1).
diaries of multinational corporations undertaken for The extent of organizational interactions is high
the purpose of entering new geographic markets, li- among competitive and noncompetitive alliances, and
censing and cross-licensing agreements, and franchising low among precompetitive and procompetitive
deals and include interfirm links established through alliances. The conflict potential among partners is high
contractual agreements like joint R&D, joint product among precompetitive and competitive alliances and
development, long-term sourcing agreements, joint
manufacturing/marketing, and shared distribution/ Figure 1 : Typology of Alliance
service; equity arrangements without creation of any
new entity like minority equity investments, and High
equity swaps; and creation of new entity of non-subsi-
diary joint ventures with or without equal equity
holding. Precompetitive Competitive
In brief, strategic alliance may be defined as Conflict Alliances Alliances
cooperation between two or more independent firms Potentia
involving shared control and continuing contributions
by all partners for mutual benefit.
Procompetitive Noncompetitive
Types of Strategic Alliances Low
Alliances Alliances
According to Yoshino and Rangan (1995), corporate
strategic objectives are multi-dimensional and often Low High
Extent of Organizational Interaction

16 Vikalpa
low among procompetitive and noncompetitive Competitive alliances are similar to noncompetitive
alliances. alliances in terms of the joint activity (and hence in
the level of organizational interaction) but differ in
Procompetitive alliances are generally interindustry, that the partners are apt to be direct competitors in
vertical value-chain relationships, as between manufa-
the final product market. Examples include the ties
cturers and their suppliers or distributors. Once mana-
between General Motors and Toyota, which are jointly
ged at arm's length, they are now accorded much manufacturing cars in Fremont, California, between
more attention as the strategic nature of these links Siemens and Philips, which are jointly developing a
is widely recognized. General Motors' and Hitachi's
one-megabyte chip, between Motorola and Toshiba,
working together to develop an electronic car is
which jointly plan to manufacture microprocessors
representative of procompetitive alliances. In such
in Japan, and between Ford and Nissan, which are
links, although firms work closely to develop or
to jointly manufacture vans in the US. Such cooperation
improve products and processes, the type of coope- calls for intense interaction between the paired firms,
ration requires low levels of organizational interaction. even though they are direct rivals, with an implicit
Moreover, the firms tend not to be rivals. Indeed,
high potential for conflict. Here, as in the case of
some firms, such as Toyota, rely on a federation of
noncompetitive alliances, maintaining strategic flexibi-
procompetitive alliances to compete against their
lity is unlikely to be uppermost in the minds of
market rivals at low levels. The strategic objectives of
managers. Adding value is likely to be important, but
protecting core competencies and learning take a back not the highest strategic priority. In the face of compe-
seat to those of maintaining strategic flexibility and titive rivalry, leakage of information is apt to be detri-
adding value. Hence, firms like General Motors tend
mental; hence, protection of core strategic competencies
to maintain more than one link for the same activity.
is critical. Learning, given the opportunity for it, is
Cases of strategic alliances in Indian industry also apt to be ranked high by managers.
(discussed in detail later) include a representative of
Cases of strategic alliances in Indian industry
procompetitive alliance between Telco Ltd. and Cum-
(discussed in detail later) include representatives of
mins Engine Company Incorporated where the joint
competitive alliance between Tata Tea Ltd. and Hitachi
venture is set to manufacture diesel engines for Telco
of Japan where the joint venture will largely function
vehicles in Jamshedpur.
as a marketing and trading company with an aim to
Noncompetitive alliances tend to be intraindustry market Tata Tea Ltd.'s products in Japan and in the
links among noncompetitive firms, for example General international market, between Videocon and Sansui
Motors and Isuzu, which are jointly developing a where the Videocon shall use for five years the
small car that both will sell. The level of interaction technology as well as the brand name of Sansui to
in this cooperative effort is high; joint development enter the European market, between Doordarshan and
of a new car calls for close contacts at different levels CNN of the US for CNN to telecast for two years on
and in multiple functions (e.g., design, engineering, Doordarshan network, between Ansal Group and
manufacturing, and marketing, to name a few). The Daewoo Corporation of South Korea and other such
firms' competitive universes meet, but only occasiona- joint ventures to develop roads and expressways, bet-
lly, and neither views the other as a major rival. Given ween Raymond Industries and Clarity Denim Indu-
the partners' significant commitment of time and stries of Italy and other such joint ventures to
effort, neither is likely to seek to duplicate its efforts manufacture denim fabric.
in another alliance. The firms are, therefore, unlikely Precompetitive alliances typically bring together firms
to rank flexibility maintenance and protecting core from different, often unrelated industries to work on
competencies as high priorities. Learning, on the other well-defined activities such as new technology
hand, is likely to be very high on the agendas of the development. DuPont and Sony's cooperative deve-
partner firms' managers although, in the same industry, lopment of optical memory-storage products is an
the partners are sufficiently dissimilar to render an example. Working together, the two firms, neither of
alliance worth considering. which possesses the technological or market know-
Cases of strategic alliances in Indian industry how to succeed alone, expect to develop a product
(discussed in detail later) include a representative of they will subsequently manufacture and market
noncompetitive alliance between Ranbaxy Laboratories independently. The joint activity is well defined,
Limited and M/S Eli Lilly of the US where the joint involving only limited interaction between the firms,
venture is to manufacture and market Lilly brands in largely confined to researchers from the respective
the Indian market. companies.

Vol. 21, No. 2, April -June 1996 17

 But being potential rivals in the memory-storage respect of R&D, product development, sourcing,
market adds another dimension to the relationship. manufacturing, marketing, distribution, service and
Because a technology explored by partners in a standard setting. Its objective is enrichment of the
precompetitive alliance is liable to be just one of many alliance partners by upgrading value chains and thus
possibilities, the cooperating firms tend to maintain improving competitive positioning of the alliance
strategic flexibility by not confining themselves to one partners by offering better or more value for money
relationship. That is, flexibility is a key management to the customers/consumers.
concern. Moreover, as product development proceeds
The impact of a cartel generally transcends business
and commercialization nears, the competitive element
or industry in a geographic market which is not the
may begin to colour the relationship, with each firm
case in strategic alliance where the impact would
trying to gain insight into the core competencies of
initially be limited to certain pockets in the business/
the other, rendering protection of core strengths
industry to which the alliance partners belong to.
another critical strategic management objective in pre-
Usually, cartels are formed by horizontally related
competitive alliances.
firms and strategic alliances are formed by horizontally
An important characteristic of these types of allia- as well as vertically related firms.
nces is their capacity to transform an interfirm relation-
ship from one type to another. A cartel has no consideration for upgradation of
value chain and hence firms do not aim to improve
Cases of strategic alliances in the Indian industry their competitive positioning compared to the
(discussed in detail later) include a representative of competitors. Rather, freezing of the competitive posi-
precompetitive alliance between Tata Industries tioning of the member firms is one of the important
Limited and IBM World Trade Corporation of the US underlying conditions. Also there is no learning
in the field of electronics to make the joint venture involved. Strategic alliance is formed with the basic
India's top information and technology company. objective of improving the competitive positioning of
The managers involved in strategic alliances must the alliance partners compared to the competitors, and
attend to all the four objectives — maintaining flexi- to learn as much as possible from other alliance
bility, protecting core competencies, enhancing partners.
learning, and maximizing value — recognizing that All the members in a cartel may not be fully
their relative priority or order of importance tends to committed, as they might have joined the cartel under
vary among the different types of alliances. The some compulsion or fear of being isolated from the
relative priority or descending order of importance for mainstream group. In a strategic alliance, the partners
managers of precompetitive strategic alliances would are normally fully committed and are willing to form
be flexibility, core protection, learning, and value an alliance. Cartel has the nature of association-
adding. For competitive strategic alliances, they would member relationship with provisions for penalties for
be core protection, learning, value adding, and violation of the agreement on output quotas and/or
flexibility. For noncompetitive strategic alliances, they minimum prices. Strategic alliance has the nature of
would be learning, value adding, flexibility, and core partnership relationship generally without penalty
protection. And for procompetitive strategic alliances, clause. Other alliance partners may end the alliance
they would be value adding, flexibility, core protection, in case a partner violates the agreement or fails to
and learning. perform the assigned tasks.
Cartel and Strategic Alliance In a cartel, all the member firms are expected to
comply with the agreed observance of production/
A cartel is a federal or a loose form of business
supply or price level maintenance. However, each
combination of a majority of the firms engaged in
firm carries on its own business affairs independently.
manufacturing/selling goods/services normally in the
There is neither any control nor interference by the
same business/industry and generally operating in
other member firms nor is there any contribution
the same geographic market. Its objective is to gain
upgrading firms. In strategic alliance, firms exercise
monopolistic advantage for the member firms at the
control, interfere in the business as well as contribute
cost of customers/consumers by restricting compe-
to technology, products, equity, or expertise significa-
tition, limiting supply or adopting common pricing
ntly on a continuing basis by performing the assigned
policies.
tasks.
Strategic alliance is a form of business combination
consolidating interfirm links between two or more Cartels generally are short-term relationships. The
firms belonging to the same or different industries in dissolution of a cartel is simple and quick as this

Vikalpa
18
involves only withdrawing the imposed restrictions nces is not combined on a permanent or irrevocable
on holding the production/price levels. Strategic basis and hence the question of dissolution of strategic
alliances generally are long-term relationships. The alliance remains ever important.
dissolution of strategic alliance is complex and time- While a merger often faces obstacles and fails to
consuming as assets/liabilities are required to be split materialize due to resistance of agencies external to
among the partners. the concerned firms (creditors, customers), a strategic
Cartels were popular in the early stages of alliance does not face resistance from agencies external
industrialization and are generally possible under to firms.
controlled economy with demand normally surpassing Through merger of firms, a firm aims at quick
supply. Cartels tend to cause corruption in the system, growth in assets and turnover and improving its
bureaucracy or government. Strategic alliances are competitive position by increasing control over
popular in advanced stages of industrialization and production and other facilities and dominance in
are generally possible under uncontrolled or liberalized market through increased market share and often
economy with supply normally surpassing the through benefits of economies of scale of operations
demand. Strategic alliances do not tend to cause through volumes. Firms entering strategic alliance aim
corruption in the system, bureaucracy or government. at reliable growth in turnover and profitability by
Less efficient firms survive under the cartel system improving their competitive position through
at the cost of efficient ones. Due to strategic alliances, strengthening their value chains. Economies of scale
however, less efficient firms are wiped out sooner of operations is of minor consideration whereas division
or later and only efficient firms survive. of labour/expertise is of major consideration.
Cross border cartels are rare whereas cross border In a merger, the management of the acquired firm
strategic alliances are normal. Cartels are generally totally loses control over the firm except in the case
not publicized/advertised and are often clandestine of merger of the firms under the same management
affairs. Strategic alliances are generally publicized/ and the management of the acquiring firm assumes
advertised to get maximum mileage and are not total control of the acquired firm. In strategic alliance,
clandestine affairs. Often, intervention by the govern- all the alliance partners share control over the strategic
ment is required to break manifested or unmanifested alliance activity or the new entity so created. The
cartels. Government generally does not interfere in management of both the firms does not lose total
breaking strategic alliances. Cartels often attract penal control over the affairs of their firms or the new entity
criminal action by the government whereas strategic so created.
alliances generally do not.
Sale of assets/equity of a firm is involved >'in
Cartels were popular in Germany and are not merger. In strategic alliance, sale of assets/equity may
popular anywhere now. Strategic alliances were popu- not be involved. Merger may take place following
lar in Japan to begin with and are now popular in hostile takeover. No such hostility is involved in
Japan, the US, and Europe and are gaining popularity strategic alliance whether or not sale of equity is
all over the globe. Cartels, on the other hand, have involved.
become illegal almost all over the world. The interest of the shareholders, the creditors, and
Merger and Strategic Alliance the labour gets directly and significantly affected in
merger as it involves takeover of total business of a
A merger between two firms is generally absorption firm. Each merging company has to obtain approval
of a weaker firm by a stronger firm. A strong of the shareholders by special resolution. No such
company empowered by its memorandum may take approval is necessary for firms entering into strategic
over the business of a weaker company. Such a alliance as the interest of the shareholders, the creditors,
merger is called complete consolidation of businesses. and the labour, does not get affected directly or
The merging firms lose their individuality, identity, significantly, at least in the short run.
and goodwill once the merger takes place. In strategic Certain basic terms and conditions of merger,
alliance, on the other hand, the goodwill of the firms whether or not through hostile takeover, have to be
involved tends to enhance. disclosed as per the legal requirement. No such legal
The interest of the firms involved in merger is requirement exists for forging a strategic alliance
consolidated on a permanent or irrevocable basis and without equity arrangement. The public at large do
hence the question of dissolution of merger does not not get affected even when equity arrangement is
arise. The interest of firms involved in strategic allia- involved.

Vol. 21, No. 2, April -June 1996 19

 Mergers tend to monopolize and restrict agreements. These coalition modes became important
competition in an industry which is anti-consumers means of supplementing strengths and covering
and hence have to pass through legal scrutiny that weaknesses (Syeda and Ganesh, 1992).
they are not aimed at or likely to cause monopoly or
restrict competition under anti-trust laws. In India, it In Japan, however, strategic alliance is not a novel
is necessary to obtain clearance of the merger from concept. Rather, strategic alliances were encouraged
the High Court. Before the MRTP Act was restructured in the Japanese industries as a matter of rule rather
in 1991, it was also necessary to obtain clearance of than as an exception, especially after the Second
the Central Government. No such clearance is necessary World War when Japanese industries were in shambles.
for strategic alliance as basically strategic alliances For example, in Japanese automobile industry, rather
tend to increase competition. than manufacture the whole cars themselves and
practice extensive vertical integration, the car
Merger of failing (loss making) firms with another manufacturers purchase many parts from suppliers.
excellent firm is normal which is not the case with Suppliers who provide a particular component have
strategic alliance. Cash-on-hand plays an important suppliers who, in turn, depend on other suppliers.
role in merger. At times, this factor alone plays a What makes these first, second, and third source
pivotal role in triggering a merger. Shortage of it suppliers a network, as distinct from a production
motivates the management of a company to dispose chain, is that they engage in joint design and pro-
of the company and the management of a company blem solving. The Japanese call these vertical Keiretsu
with surplus is motivated to acquire another company. or system line. The car assembler targets a total price,
This is not the case with strategic alliance. a price that allows a reasonable profit for both the
assembler and the suppliers. To achieve this profit,
Before acquiring a firm for merger, the acquirer the assembler and the suppliers work together to
focuses on all the strengths and weaknesses of the lower the cost of each part. For this system to be
target firm. Under strategic alliance, firms consider effective, both the primary supplier and the assembler
mainly the strengths of the other firms and the extent must share a great deal of information about production
to which such strengths could complement weaknesses costs and profits, participate together in designing the
in their value chain. component parts, and work with the engineers of the
secondary suppliers (Alter and Hage, 1993).
Global Scenario
In a detailed study, Clark (as reported in Womack
The emergence of business coalitions dates back to the et al, 1990, p.lll in Alter and Hage, 1993) found out
formation of maritime enterprises. They were one of that it took the Japanese an average of 1.7 million
the oldest ways of transacting business and were hours of engineering and 46 months to deliver a new
originally used as a commercial device by the model of a car. The Americans and Europeans, by
merchants of ancient Egypt, Babylonia, Phoenicia, and contrast, took 3 million hours of engineering and 60
Syria to conduct sizable commercial and trading months. The Keiretsu system allows the Japanese to
operations, often overseas. "Industrialization during shorten the production process and reduce costs,
the 15th and the 16th centuries Europe organized the which enables them to create more innovative designs
adventures of the leisure class to carry on trade and [contributing to their competitive advantage.
to exploit the resources of various far corners of the
world, such as America and India" (Nicholas, 1950). Coalitions are formal long-term alliances between
firms that link aspects of their businesses but fall
Early in the 20th century, joint ventures were short of a merger (Syeda and Ganesh, 1992). According
formed in the US to pool risks in shipping, gold to Porter (1985), coalitions are becoming more strategic
exploration, and other undertakings. One of the largest through linking major competitors together to compete
projects ever to be conducted as a joint venture worldwide.
involved the apportionment and development of crude
oil reserves in the Middle East by four American oil General Motors[GM] traditionally avoided joint
companies through ARAMCO (Bergman, 1962). With ventures in which it did not have majority control
the growing complexities in the business environment, (Yoshino and Rangan, 1995). A 1966 policy statement
joint ventures have also become complex. Hence, on the issue of control of foreign operations declared
various methods were adopted by competing firms that: "unified ownership for coordinated policy control
to foster cooperation to remain globally competitive. of all operations throughout the world is essential
These methods are manifested in the form of joint for [GM's] effective performance as a worldwide
ventures, partnerships, licensing, supply and marketing cooperation." When it sought to gain control over

20 Vikalpa
Japanese car-maker Isuzu in 1969, GM accepted a by-day by. the courts and by the Federal Trade
minority shareholding only after Japanese investment Commission (Trade Regulation Reports, 1989). This
laws thwarted its efforts to secure a greater share. GM implies that strategic alliances would also be covered
subsequently relaxed its insistence on majority control under the purview of anti-trust laws.
of interfirm links. In 1978, it accepted a minority stake
At present, an anti-trust probe is on in the US
in Suzuki of Japan, and since 1983 has formed a 50:50
against Microsoft (US) of Bill Gates. The Justice
joint venture with Daewoo of Korea, Toyota(in the
Department has been raising questions about
US), and Suzuki(in Canada), entered into a joint
Microsoft's alleged anti-competitive behaviour and
venture agreement with Japan's Fanue(a leader in
has recently sought information from on-line service
factory automation), and begun cooperative research
providers, including Compu Serve Inc. and Netcom
and development with Hitachi in the field of
On-line whether Microsoft intentionally built into its
automotive electronics.
Windows 95, a code that prevents rival software
In the US, anti-trust laws generally do not permit programs from linking a PC to on-line services and
close links between domestic firms in the same Internet. Microsoft, however, denies such accusations
industry. In the 1980s, controversy arose when senior (Cortese, Rebello, Hof, and Yang, 1995). When the
managers of three big auto firms had a casual anti-trust probe is complete and findings made public,
meeting to discuss the implications of the federal we would come to know whether the strategic alliances
government's Clean Air Act proposals. Legislation Microsoft had with other firms had anything to do
relating to R&D collaboration (National Cooperative with the anti-trust probe. However, so far, no other
Research Act of 1984) by domestic firms and the case of well-known strategic alliance has reportedly
relaxed view of Clinton administration towards come under the purview of anti-trust laws.
domestic alliances, especially when the federal
In the US, the anti-trust laws started losing their
government is a member of the alliance as in the case
edge with Ronald Reagan and the Republican Party
of developing an energy efficient car, have altered this
coming to power in 1980s. The government was
situation (Yoshino and Rangan, 1995).
favourable to business and industry and they had
Anti-Trust Laws and Strategic Alliance their own ways of management. The grip of anti-trust
laws started loosening. Almost all kinds of strategic
Basic federal anti-trust and trade regulation law alliances as well as mergers were allowed to take
policy in the US are set forth in four laws — the place. Despite Bill Clinton and the Democratic Party
Sherman Act, 1890, the Federal Trade Commission coming to power, the situation has not changed
Act, 1914, the Clayton Act, 1914, and the Robinson- significantly though the Democrats are known as
Patman Act, 1936. The Sherman Act condemns having a bias towards regulations especially concerning
contracts, combinations, and conspiracies in restraint business. Now the general approach of the government
of trade, monopolizing, attempts to monopolize, and in the US is that regulations are harmful. This is not
combinations and conspiracies to monopolize. In 1914, surprising considering the beating American business
the Federal Trade Commission Act was enacted with took from Japanese business and the strong
its creation of an administrative body for policy deve- competition from EU. It is widely believed that the
lopment and its broad prohibition against unfair competitive advantage Japanese business built is
methods of competition. In the same year, the Clayton based on its strategic alliances. This prompted many
Act was enacted with its specific prohibitions against American businesses to go in for strategic alliances
price discrimination, exclusive dealing arrangements, even with Japanese rivals and the government did
corporate acquisitions of stock, and interlocking little to discourage them. This has also laid the
directorates. These acts were subsequently amended foundation for globalization of business. At present,
and expanded to include unfair or deceptive acts or there are many strategic alliances being formed among
practices (false advertising, etc.), and prohibition the telecommunication companies and entertainment
against acquisitions of assets. companies and studios without any hindrance from
Basic federal anti-trust and trade regulation policy the anti-trust laws in the US.
contain no affirmative regulation to bring business Unlike in the US, the Government of India, under
activities and practices within the concepts of the the MRTP Act, 1969, had made it mandatory for
anti-trust and trade regulation policy. Rather, the business groups (inter-connected undertakings)
approach is negative, that is, prohibiting agreements, commanding assets of Rs.20 crore or more (Rs.100
activities, or practices which conflict with a policy crore or more from 1985 to 1991) to obtain prior
which is grounded in the laws and developed day- approval of the Central Government for expansion,

Vol. 21, No. 2, April -June 1996 21

establishment of new undertakings, merger, new technology-based, fast-growth entrepreneurial
amalgamation, takeover, and appointment of Directors. firms; to create high-value jobs; and to enhance US
The MRTP Act was restructured in 1991 and the industrial competitiveness (Gibson and Rogers, 1994).
above requirement of prior approval was eliminated. The most dramatic development of international joint
This has made it easy for businesses to go in for ventures has been in the US automobile industry,
strategic alliances and has resulted in the formation where former bitter rivals now have strategic alliances.
of a number of strategic alliances since then. The For example, Ford currently manufactures minivans
study of strategic alliances, therefore, assumes with Nissan at a Ford plant in Ohio, assembles
importance even in India. Mazda's Mercury Tracers in Mexico, has a working
Arguments in Favour of and Against agreement with Mazda to build Ford Probes in
Michigan, and has merged its operations in Brazil and
Strategic Alliances Argentina with Volkswagen (Kraar, 1989 in Alter and
An extensive study of interfirm links led Taucher Hage, 1993).
(1988), a business school professor in Europe (a region Yoshino and Rangan (1995) also counter the stand
that has seen an explosive growth in the business of Porter and state that alliances are neither mere
alliances in the last decade), to conclude that "strategic "transitional devices... destined to fail" nor do they
alliances are doomed." Harvard Business School "deter" an alliance-seeking firm's "own efforts at
professor Michael E Porter (1990) has pushed the logic upgrading" its core competencies, but that, on the
of inevitable doom further arguing that alliances are contrary, alliances enable firms to focus on and invest
mere "transitional devices rather than stable in a few selected core competencies, leverage the
arrangements" and hence "destined to fail." Porter competencies of other firms, and thereby grow into
contends that "alliances are rarely a solution [to the formidable global competitors.
problems of seeking the home-based advantages of
another nation]" because "they always involve Richardson (1972), an academic economist, was
significant costs in terms of coordination, perhaps one of the earliest observers of the
reconciling goals with an independent entity, creating a phenomenon of interfirm alliances. His research in the
competitor, and giving up profits." Porter concludes area of industrial economics suggested that a network
that "alliances tend to ensure mediocrity, not of relationships with other firms is a sine qua non for
create world leadership...and deter [a] firm's own success in the competitive market.
efforts at upgrading" and that "ultimately, the For Perlmutter and Heenan (1986), who have
alliance partner may have to be acquired [or acquire argued that cooperation strategies are the wave of the
its partner] to yield a sustainable international future, the essence of the alliances' managerial task
position." So critical of strategic alliances is Porter is to work towards harmonious relationships and
that he stated "slowly and almost imperceptibly, over thereby enhance the value of cooperative activity.
more than a decade, America has been retreating from They have little to say about the rivalrous aspects of
one of the most fundamental principles that has such relationship. Ohmae (1989) too deems strategic
distinguished our nation (America) from others: alliances as essential to effective global strategy,
our faith in competition... What is needed today in particularly in Japan.
America is not less competition, but more. Instead of Hamel, Prahalad, and Doz (1989), in prescribing
relaxing antitrust enforcement, we should be a Machiavellian approach to alliance management,
tightening it. Mergers and alliances between leading contradict Perlmutter more sharply. They are of the
competitors should be prohibited — they are good view that management's key task is to learn — openly
neither for companies nor for America." if possible, surreptitiously if necessary — from alliance
On the other hand, in the US, R&D consortia and partners and to use that learning to win in the market-
other forms of alliances among businesses, government, place, presumably at the expense of erstwhile allies.
and academia have become increasingly common Reich and Mankins (1986) view an alliance as "giving
during 1980s (there were more than 2,000 alliances in away the future" of the firm (usually American) to
Europe alone and 12,000 worldwide in 1980s) and the foreigners (usually the Japanese or Koreans). Their
early 1990s. Public and private leaders in the US implied prescription? Avoid alliances like the plague.
contend that the "go it alone" strategy will be the
downfall of the US business. In response to global
Costs versus Benefits
competitive challenges, alliances are argued to be Any firm opting for strategic alliance incurs certain
important for maintaining scientific pre-eminence; to costs as well as gains benefits compared to a firm
leapfrog foreign technology advances; to establish that goes on its own. Alter and Hage (1993) listed

22 Vikalpa
major costs and benefits to firms involved in strategic competitor could use a combination of strategies
alliances. which exploit the weakness of all the alliance partners
timing it in such a way that the weakness of one
The firm gets committed not only to a goal of its alliance partner is exploited quickly before another
own but that of its alliance partner. This involves cost alliance partner comes to its rescue to defend the
in terms of goal displacement. The firm also loses alliance. This is how a competitor may induce the
the autonomy and hence its ability to unilaterally synergy to work in reverse in such strategic alliances.
control the outcomes. All the partners in an alliance This would improve the competitor's competitive
have control over the performance of the assigned position manifold. On the other hand, the firm under
tasks. No partner, hence, can unilaterally control the strategic alliance may benefit from the rapidity of the
outcome of an alliance activity. Similarly, all the response to the changing market demands when new
partners in an alliance have to depend on each other. technologies are readily supplied by its alliance partner.
As against these, the firm benefits in terms of gain The delay in the use of new technology is reduced
of influence over domain and improvement in which benefits the firm in creating a competitive edge
competitive positioning. This is because the firm's over its competitors.
strengths are supplemented by the strengths of its
alliance partner as well as by the synergy additionally The understanding reached among the alliance
created. This improves the value chain of the firm. partners is crystallized into an agreement of alliance.
The firm may also use its improved competitive No agreement can capture all the details of an
position to penetrate new markets in the same understanding. The complexity increases when a
country. The increase in capacities may also support situation arises which is unforeseen or not provided
the firm's presence in new markets. The firm may also for in the agreement. These may create conflict over
gain access to the foreign markets by choosing an goals, domain, and methods to be followed in the
alliance partner based in or having operations in such alliance activity among the alliance partners and
countries. might result in setbacks to the alliance. On the other
hand, the group synergy may be beneficial to the
The firm may not be able to use its own time- alliance partners in such a way that they support each
tested technology, if the alliance partner does not other mutually and amicably resolve whatever
subscribe to it. It may have to use the dominant differences that may arise. This leads to a harmonious
partner's technology which could be different or the working relationship intra and inter alliance firms,
combination of its own technology and its partner's. which in turn further increases the synergic benefits
This is likely to have its impact on the stability of the and the cycle goes on. The competitor, deprived of
firm as it gets exposed to the uncertainty of using the benefits of group synergy, would lose his compe-
unfamiliar technology. On the other hand, the firm titiveness and, in turn, cohesiveness and harmony and
develops its ability to manage uncertainty under real the cycle goes on.
or perceived protective support of its experienced
alliance partner. This helps the firm solve invisible Strategic alliance is a relatively new concept in
and complex problems with the help of increased management. It is also more difficult to manage, and
confidence and or support from the alliance partner. hence may lead to failure of strategic alliances formed
The firm may be able to specialize in its field if its even by excellent firms. A failure would mean loss
alliance partner contributes to fill the missing gaps of time, money, material, information, reputation,
in the value chain of the firm. The firm may also status, technological superiority, competitive position,
diversify into other unrelated fields with the support and financial position. The benefits of success are in
of its alliance partner. Thus, the firm will be in a terms of gain of resources like time, money, infor-
better position to ward off its competitors, who are mation, and raw material. The firm also gains legiti-
likely to get immobilized at least for the time being macy and status and benefits through utilization of
as they would have to revise their strategies keeping unused plant capacity. Above all, the firm has
in view the changed competitive positioning of the opportunities to learn, to adapt, develop competencies,
firm. This situation could be used by the firm to push or jointly develop new products as well as share the
its advantage further. cost of product development and associated risks.
Alliance firms, however, are likely to suffer from Experience is the best teacher but it charges high
delays in solutions due to problems of coordination fees. Very high fees in practical business. This blunts
and an alert competitor may exploit this weakness in- the inquisitiveness of any firm to learn through the
built in any alliance to its great advantage. The failure of an experiment. Strategic alliance provides

Vol. 21, No. 2, April -June 1996 23

some security to an inexperienced firm that even if requires more capital than planned for and so the
the experiment goes haywire it can look forward to partner with more resources prevails. Alternatively,
rescue by the other experienced alliance partner. a partner with greater learning power prevails.
When the assigned tasks are to be carried out by the
firm's partner in alliance, the firm still benefits by the A company may opt for partnering with instead
firm being a witness to the process of implementation of competing against other company in its core
of such tasks. Perhaps, the most important benefit business. This often leads to unplanned divestiture.
strategic alliance offers to a firm is the opportunities Alliances between direct competitors (rather than
to learn. complementary allies) with similar core business,
geographic markets, and functional skills tend to fail.
Often, a firm aiming to expand its operations Tension between the partners is the major cause. The
abroad benefits by going in for an alliance as it helps success rate of such strategic alliances is only 1/3.
it gain acceptance from the government of the foreign Strategic alliances between two second-tier companies
country. This is so because the government of the may fail to become strong and lead to complicated
foreign country may desire involvement and sale. Strategic alliances between a strong partner and
development of the local firms. On the other hand, a weak partner too tend to fail as the weak partner
the firm may suffer restrictions from governmental tends to get out of the arrangement as soon as it
regulations if the government feels that such strategic improves skills it intended to improve. A strategic
alliances would be detrimental to furtherance of the alliance between two partners to raise capital for one
public interest. However, it would still be desirable without its losing the management control is successful
to have strategic alliance with a foreign firm because only if the other partner is largely a passive investor.
it would be knowledgeable about the complexity of Two strong and compatible partners of strategic
the local conditions as well as be more sensitive to alliances develop competitive tensions and if there is
the changing environmental conditions and so it may a shift of bargaining power, one would sell to another.
raise timely alarm for the firm to respond appro- Such strategic alliances may succeed only if they meet
priately. the initial objectives which are not competitive.
Relative Bargaining Power Under Strategic Strategic alliances between equal partners having
Alliances complementarity usually remain strong as they
generally contribute to the mutually beneficial
Bleeke and Ernst (1995), based on experience with relationship and last much longer than seven years.
more than 200 alliances in various phases from initial Considering the above, it is advisable to create and
negotiation through termination, developed a way for maintain distinct boundaries of the strategic alliance
managers to diagnose an alliance. According to them, entity.
senior executives resort to strategic alliances in order
to expand the company's product, geographic markets, Why Strategic Alliance ?
or customer reach. In the last five years, the number To understand a firm's competitive strategy, it is
of domestic and cross-border alliances has grown by necessary to understand the value chain of its business
more than 25 per cent annually. (Porter, 1985). Every firm performs a set of discrete
The median life span of alliances is only about tasks related to designing, producing, marketing,
seven years, and nearly 80 per cent of joint ventures delivering, and supporting its products. Value activities
— one of the most common alliance structures — are normally physically and technologically distinct.
ultimately end in a sale by one of the partners. If the In essence, a value chain disaggregates a firm into its
endgame is not anticipated (by the CEO), what begins component activities. While firms in the same industry
as a strategic partnership can lead to an unplanned tend to have similar value chains, the value chains
sale that erodes shareholder value. The key to under of competitors often differ in emphasis. Identifying
standing whether an alliance is likely to lead to a sale these differences is the first step toward understanding
— and which company is the likely buyer — is to companies' competitive strategies. A firm's value
project how the relative bargaining power of the chain and the way it performs individual activities
partners will evolve. are a reflection of its history, its strategy, its approach
to implementing its strategy, and the underlying
Relative bargaining power depends on three economics of the activities themselves.
factors: the initial strengths and weaknesses of the
partners, how they change over time, and the potential Herein lies the strategic logic of alliances — that
for competitive conflict. Generally, strategic alliance advantages traditionally gained through internal

24 Vikalpa
development must now be secured through external trading. A Japanese base will give Tata Tea Ltd. a
networks. Multinational and national firms alike can competitive advantage not only in terms of servicing
strive to compete globally through coalitions or other countries but also in assessing one of the world's
strategic alliances with other independent firms. Coali- most demanding markets: Japan.
tions or alliances are, according to Porter (1990), a
Cummins Engine Company Incorporated (CECI),
"way of broadening scope without broadening the
the US $5 billion company of US, and pioneers in
firm by contracting with an independent firm to share
the manufacture of diesel engines, is all set to make
[value] activities." Firms usually enter into alliances
a big sway in Indian diesel engine market with its
in an ad hoc fashion, driven by immediate, tactical
joint venture with Telco Ltd. to manufacture Telco
reasons.
engines. CECI is setting up a new line of smaller
Strategic Alliance in the Indian Industry engines for Telco vehicles in Jamshedpur. Significantly,
this plant would have 20 to-30 per cent of CECI's
The emerging globalization due to liberalization is current worldwide capacity. CECI has also tied up
opening up yet another major dimension in the field with the Tatas to expand its turbocharger capacity in
of strategic management — the strategic alliance. The India.
concept of strategic alliance is causing far more impact
than that of a mere business management practice. The telecom sector, which has just opened up for
Apart from creating transnational corporations, it is private sector firms, has seen a series of strategic
fading the boundaries of identity of not only corpo- alliances between the Indian partners and foreign
rations, but even that of nations. Some cases of stra- companies, as the Indian government has laid down
tegic alliances of Indian companies are discussed a condition that no foreign company can enter the
below: Indian telecom sector without its having a joint ven-
ture with an Indian company. A series of joint ven-
According to Ratan Tata, very few Indian busine- tures thus ventured into overnight are: Reliance
ssmen have the capability of competing on their own Industries Ltd. and Nynex Corporation; Aditya Birla
in the emerging environment of globalization. The Group and AT&T; Tata Industries and Bell Canada;
businessmen are concerned about their individual Essar Group and Bell Atlantic; Ashok Leylands
sovereignty whereas they should be looking at alliances (Hindujas)- HCL and Singapore Telecom; BPL Systems
and aggregation of companies as it so often happens and US West; RPG Telecom (Basic) and NTT
abroad (Karmali and Ravi, 1995). In the Tata-IBM joint Corporation; RPG Telecom (GSM) and Air Touch;
venture in the field of electronics, Tata has accepted SPIC Group and Telstra-; B.K. Modi Group (Basic) and
five IBM members in the eight member Management Telecom Asia (Thailand); B.K. Modi Group (GSM) and
Committee. Ratan Tata says that his group has no Vanguard; Max (GSM) and British Telecom; Arvind
fetish about control. Mills Ltd. and France Telecom; Crompton Greaves
and Millicom; Y.K. Modi Group (Basic) and Korea
IBM World Trade Corporation and Tata Industries
Telecom, Qualcomm; Bharti Telecom & Stet; Ispat
Limited have entered into a joint venture to form Tata
Group (Mittals) and British Columbia, Hughes
Information Systems Limited (TISL) to make it the
Network; Indchem and Jasmine/Telia; and Usha
country's top information and technology company by
Martin and Telekom Malaysia.
2000 in terms of market share, customer satisfaction,
and in being viewed as a national asset. Videocon has also got into a technology transfer
arrangement with Sansui's range of audio systems.
Tata Tea Ltd.(TTL), the world's largest integrated The products will be sold under the brand name
tea company, will control a 51 per cent majority equity 'Sansui by Videocon.' Realizing that it would be
stake in its Japanese joint venture with Hitachi, one difficult for it to enter the European market with its
of the largest conglomerates in Japan. Hitachi will brand name, it decided to initially use Sansui's brand
have a 49 per cent stake. The TTL-Hitachi joint name for five years and later sell its products under
venture will largely function as a marketing and the Videocon brand name.
trading company with an aim to market Tata Tea
Ltd.'s products in the growing Japanese market and Doordarshan went in for a two-year strategic
also enter the field of international business including alliance with CNN for 24 hours news channel accepting
commodities trading. Once the tea and coffee exports US $1.5 million (Rs.4.65 crore) a year as the minimum
gets underway in a major scale, the joint venture will charge and a 50 per cent share in the advertisements.
target the arena of international business including Doordarshan could thus avoid competition with global
spices and other commodities and third country competitors initially. After two years, even if CNN is

Vol. 21, No. 2, April -June 1996 25

not agreeable to renew the contract, Doordarshan will Piles, L&T and Colas, France, Gruppo Dipenta
be in a better position to face global competition. Construction of Italy who have jointly bid with Lanco
Construction and Graham of the UK who would be
Ranbaxy Laboratories Limited(Ranbaxy), a leading the main engineering partner of Satayam &
pharmaceutical company in India, is driven by a Sankaranarayana.
mission "to become a research-based international
pharmaceutical company." Its strengths lie in R&D Arvind Mills Limited has entered into a marketing
and world-class manufacturing facilities. Its commit- and technology transfer agreement with Alamac Knit
ment to brand building and internationalization is Fabrics, the wholly owned $425 million subsidiary of
spearheaded through strategic alliances and creation West Point Stevens, America's leading knitwear fabric
of subsidiaries and affiliates in major pharmaceutical manufacturer. Under the agreement, the US company
markets of the world. Ranbaxy has a strong will transfer its marketing and technical know-how
distribution network in India, being able to reach to manufacture high quality cotton knitwear to Arvind
customers through more than 1,400 stockists. Its Mills. Alamac will also assist Arvind Mills in the
aggressive marketing strategies have enabled it to construction of a knitting plant in India which will
carve out a unique niche and leadership position in commence production in mid-1996. While Alamac
the Indian market for antibiotics and antibacterials will continue to concentrate its efforts in the Western
and more recently in select overseas markets. In 1993, hemisphere, Arvind Mills will market its quality
the company formed a joint venture with M/s Eli Lilly cotton knitwear under the 'Arvind Alamac' brand
--- one of the largest pharmaceutical companies in name in the Indian sub-continent, Asia, and Africa.
the US — to manufacture and market Lilly brands This strategic alliance is expected to enhance the
in the Indian market. Ranbaxy Genpharm was potential of both the partners to participate in the
incorporated in 1993. This joint venture has acquired widening world market.
an existing manufacturing facility for oral
Cephalosporins dosage forms, which is approved by The other recent moves of Arvind Mills (world's
the Health Protection Branch, Canada. Its expansion fifth largest denim producer with a capacity to produce
and upgradation is now being planned to meet the 70 million metres) include the acquisition of 'Big
standards of the FDA in the US. The process of Lauffenmuhle' in Germany and a technical and
internationalization has been based on the twin marketing alliance with Spinnerei and Weberei Dietfurt
pillars of world-class manufa- cturing and the AG, which is a part of the Swiss conglomerate
company's applied research capability. Accordingly, Oerlikon Buhrle, for Swiss voiles. The international
the thrust is on forming strategic alliances in order brand names 'Arrow' and 'Lee' too have been brought
to gain entry into the developed countries, and to India by Arvind Mills. Arvind Fashions, a 100 per
subsidiaries and joint ventures in the emerging markets cent subsidiary of Arvind Mills has a technical tie-
and making continued efforts to export worldwide. up with VF Corporation of the US which owns Lee
The company is also reportedly negotiating with label. VF Corporation brands (Lee, Wrangler, and
several international pharmaceutical companies to Hustler) taken together command the largest share in
forge strategic alliances in the UK, the US, Germany, the US jeans market (30%).
and South Africa. Ranbaxy is of the view that a big Arvind Mills and FM Hammerle Verm Ogensver-
market exists for generic drugs in the US as well as waltungs, GesmbH, (FM Hammerle), Europe's pre-
in Europe and it plans to enter this market with drugs eminent shirting fabric producer, have forged a
carrying a distinct brand identity. strategic cooperation pact to become an "unbeatable
combination" for manufacturing and marketing high
Ansal group of Delhi and the US $34 billion quality shirting fabric for the global market. Under
Daewoo Corporation of South Korea have tied up for this, the advantages of Arvind Mills are combined
a 50:50 equity joint venture to develop roads and with F M Hammerle's brand name, design innova-
expressways. They have already been pre-qualified by tiveness, and extremely high standards of quality. The
the government for these ADB and World Bank manufacturing facility of this alliance is expected to
funded projects. Some of the other joint ventures for go on stream in 1996. This strategic alliance will
the five projects each estimated to cost between further reinforce Arvind Mills' ambition to become a
Rs.250-300 crore are Hyundai Engineering & member of the world's big league of players in the
Construction in tie-up with Unitech, Tralfagar House international market for textile products.
International together with THC India, Samsung and
Tarmat, CCI China, Orient Structural, Walter Bau This strategic alliance envisages three significant
Aktiengesellschaft, Germany, and Simplex Concrete steps: 1) F M Hammerle will make an investment of

26 Vikalpa
$60 million (about Rs. 190 crore) to assist Arvind Mills route of strategic alliance are: global quality
in setting up a modern manufacturing facility. 2) The consciousness and standards, global market
partners will float a joint venture marketing company information, advance technology, initial loss bearing
for exporting to the NAFTA countries of the US, capacity, professional management of international
Canada, and Mexico. 3) The product manufactured repute, funds, and confidence. The qualities that the
will be sold under the brand name "Arvind Indian companies have and foreign companies do not
Hammerle." have are: they are lean and hungry (perhaps the most
In manufacturing, the European partner will assist important factor for success), they have experience of
in product-mix, technology selection, access to designs, working in complex and relatively less transparent
collections, and new product development. In Indian environment as well as knowledge of socio-
marketing, Hammerle will continue to focus its efforts political factors influencing the success of business
in Europe while Arvind Mills will concentrate on the and risk taking ability.
Indian subcontinent, certain parts of Asia, and Africa. The major advantages for the foreign companies
In the denim fabric segment, there have been entering into strategic alliances are the size and
attractiveness of the Indian market, expected growth,
many strategic alliances. Mafatlal Industries Ltd. has
cost efficiencies, management control, competitiveness
tied up this year with Burlington Industries of the UK
of the Indian company desiring strategic alliances,
in a 50:50 joint venture, to manufacture 10 million
anticipated competitiveness of the proposed strategic
metres of denim fabric per annum. Seventy-five per alliances, and cost versus benefit analysis of the
cent of its products will be bought back by Burlingtons. proposed strategic alliance.
Raymond Industries has also entered into a
collaboration with Italy's Clarity Denim Industries to Managers of each and every business firm in India
manufacture 15 million metres of denim fabric per need to take stock of their firm's position in the emer-
annum. Seventy-five per cent of the production is ging scenario of globalization which has started in
earmarked for exports. Modern has tied up with the India due to liberalization since 1991. The government
Ireland-based Atlantic Mills, owned by the Tencate will not be able to and cannot protect the Indian
group of Holland, said to be one of the best denim industries for ever. The industries will have to be
plants in Europe. This tie-up has strengthened Mo- on their own sooner or later. The firms' survival
dern's rope dyeing technology for heavy-weight would be in doubt if they are found not among or
denims. aspiring to be among the best and the largest in the
world. Alternatively, they should link up with such
Strategic Alliance: A Powerful Tool of firms complementarily or should carve out a sustai-
Strategic Management nable niche. Managers of firms not falling under any
of the above categories should find out the most
The Indian industries so far were being protected by opportune time to sell their business to optimize the
the government. As a result, they were finding it return.
difficult to deal with global competition. In order to
become competitive globally, the most attractive and The emerging global integration has globalized
time saving route appears to be the option of strategic demand, supply, competition, and hence strategy of
alliance with leading foreign firms. Through strategic business firms. Most of the Indian firms would have
alliance, they could acquire and build the necessary to align with others, domestic or foreign, in order to
competence to catapult themselves to a position of successfully deal with the challenges posed by
world-class excellence. However, careful selection of globalization. Most of the Indian industries are
partners and shrewd negotiations with the partners uncompetitive by global standards. There is a need
become imperative in order to add to the competitive to learn and to improve.
advantage of the companies viz-a-viz other competitive
forces at home. This would also help them expand
Role of the Managers in the Emerging
at an exponential growth rate (Jhaveri, 1994). On the Global Scenario
other hand, inaction on the part of the Indian Managers of Indian business firms need to analyse
companies can prove to be suicidal. The management their own business and find out their strengths and
of the companies must also bear in mind that strategic weaknesses. They should evaluate their value chain
alliance is not an unmixed blessing. and that of their competitors and then short-list
The qualities that the Indian companies lack and probable and suitable partners. Strategic alliance with
cannot achieve in a short time except through the such partners should strengthen their value chain.

Vol. 21, No. 2, April -June 1996 27

Strategic alliance with the best partner may or may the corporate world which till recently has been
not be possible in which case one may consider the functioning with well-defined roles, responsibilities,
best available interested partner. and authorities. If a firm succeeds in its first strategic
alliance, it should explore new strategic opportunities
The structure of strategic alliance may be an
and go in for more alliances. And soon the firm would
agreement with or without equity participation for
become a global-network corporation with many
joint R&D, joint product development, long-term
strategic alliances for different aspects of business
sourcing agreements, joint manufacturing, joint
with different partners from all over the globe. Such
marketing, shared distribution/service, etc.
a state of business management is extremely difficult
Strategic alliances must be evaluated on a periodic to manage but firms will not be able to survive
or on a continuous basis. Managers of firms must without going in for it. The presence of a global-
learn new skills and upgrade their business to network corporation will be easily felt but it would
strengthen their competitive advantage. They should become difficult to distinguish it as a distinct business
ensure that their partners contribute equally to the entity because the boundaries of the functions of
strategic alliance failing which the alliance should be management and hence of the firm would tend to fade
terminated. However, termination of strategic alliance away. And the existence of such boundaries would
would require division of assets and liabilities and is not be necessary. Ultimately, the investors, employees,
a difficult exercise. If not done judiciously, this would suppliers, consumers, governments, and other involved
cause bitterness among the departing partners. The agencies should benefit to the maximum. A strategic
degree of complexity is less when the entity under alliance in itself would not ensure all these but
strategic alliance is maintained distinct. Thus, it is successful firms which use strategic alliance efficiently
advisable not to mix up the entity under strategic and effectively would.
alliance with that of the alliance partners.
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